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Monday, December 31, 2012

Good News and Bad News on the Fiscal Curb

     The good news is according to the latest reports-though this keeps changing-a deal is increasingly likely.  The bad news: many liberals seem to think the Dems are selling out out of a desire to get a deal at any price.

     Talking Points Memo speaks of the ‘Dems’ Mystifying New Fiscal Cliff Strategy.’

      “A deal like this re-enforces the GOP’s skewed approach to budgeting, which basically ignores the impact tax cuts or increases have on the deficit. It indulges their desire to reduce budget negotiations back down to what and how much to cut — and to the status quo ante that new spending can’t be paid for with higher taxes.”

     “And it calls into question Obama’s insistence that he’ll refuse to negotiate a debt limit increase early next year. Under the GOP’s most recent offer, the sequester will still be largely intact. And having agreed to compromise on the one thing he was supposed to get for free, Obama will be left to choose between two basically identical, but losing propositions: cut a skewed deal with Republicans to raise the debt limit; or “refuse” to negotiate over the debt limit, but reach the same endpoint in order to defuse the sequester.”

     “Here’s another way to look at it: Relative to current policy, tax revenues will increase by about $5 trillion over 10 years automatically if Congress does nothing. Likewise, if Congress does nothing, spending will fall about $1.2 trillion over the same timeframe. Obama’s willing to give away $4.2 trillion in revenue from the get go, and then, apparently, negotiate down further from there.Republicans don’t want to yield on any of those spending cuts, and don’t think they have to. This is why Obama’s supporters are so distraught about the latest news reports.”

     Janelle Bouie too suspects the Dems of having squandered their leverage:

      “As The Post reported, Democrats have agreed to raise the income threshold to $450,000 from $250,000, meaning that the Bush tax cuts would remain in place for all income below the former. What’s more, the threshold for the estate tax will remain at $5 million — it is scheduled to drop to $1 million. In return, Democrats get an extension of unemployment benefits — no payroll tax cut, no stimulus.”

      “The current Democratic offer is even further from ideal than the one presented by President Obama, and it represents a huge erosion of leverage. Republicans are now the ones in control, and as Jonathan Chait notes, it has everything to do with the president’s willingness to cave on taxes and his genuine desire to avoid the fiscal cliff. The White House doesn’t seem to think that it has much leverage after Jan. 1, or at least that any deal it gets after taxes go up will lack important elements like unemployment insurance.”

     “I think this is mistaken. As President Obama himself noted in his interview with David Gregory yesterday, Republicans are most focused on reducing tax rates on the wealthiest Americans. In the post-cliff environment, taxes on the wealthiest will go up far above of what Democrats want. If low taxes are their goal, Republicans have no choice but to come to an agreement, and it’s there that Democrats can draw terms to their advantage.”

    “There’s still time for the White House to embrace this and prevent further concessions to the GOP. But if President Obama remains committed to getting a deal done before the new year, then in all likelihood, it won’t be favorable to his short-term or long-term interests.”

      However, whether or not we like the deal, it seems now that a deal is more likely again-it’s like the stock market itself: every minute a new report claims the opposite of what the previous one did regarding likelihood or lack theoreof. Politico now talks of “major progress” having been made:

      “Senate Minority Leader Mitch McConnell (R-Ky.) and Vice President Joe Biden engaged in furious overnight negotiations to avert the fiscal cliff and made major progress toward a year-end tax deal, giving sudden hope to high-stakes talks that had been on the brink of collapse, according to sources familiar with the discussion.

     McConnell and Biden, who served in the Senate together for 23 years, are closing in on an agreement that would hike tax rates for families who earn more than $450,000, and individuals who make more than $400,000, according to sources familiar with talks. That would mark significant concessions for both men, particularly for McConnell. President Barack Obama campaigned on raising taxes for families who make more than $250,000, but McConnell has long been dead-set against any tax increases, warning they would jeopardize the economy.

Read more:

     As usual I must be the liberal who tells other liberals to calm down just a little bit. I agree that the Dems most not be too eager to do a deal to the extent that they give away the store. I don’t think though that what we’re hearing suggests that. Honestly I don’t think that $400,000 is terrible as a floor for the higher taxes. I have even long suspected that $250,000 is a little low: a couple who makes that are hardly rich; they’re working stiffs like anyone else though they are well educated professionals.

    I’m not thrilled with the stories that claim that the Dems may totally let the GOP win on the inheritance tax. However, while I don’t think it should stay at 35% only on inheritances above $5million, I think you have to keep in view other taxes that are going up on the rich like dividends and capital gains. I think it could be worth it to let the GOP win on the inheritance tax in exchange for a rise in the cap and dividends rates back to Clinton rates. To be sure, I hope the Dems get at least a compromise on the estate tax than leaving it at the current low rate, but if we get higher rates on income, dividends and capital gains it’s worth it.

   It is a disappointment if nothing is done about the sequester and debt ceiling. Still there’s been a lot of different snippets that have come out about this so I’d rather reserve judgement. At the end of the day the GOP has to feel like it’s getting something out of this. Certainly, the Dems should get a lot more as we won the election, have a mandate, and we gave up way too much in 2011. Still, the GOP has to get something they can show their members.

   I don’t like the specter of more debt ceiling chicken either. However, this is one way to get GOPers to support this deal: the carrot that they’ll have their chance to get what they want later. Now, I think ultimately, they overestimate their leverage on the debt ceiling. While some of them seem to remember that as a very successful operation where they got over $1 trillion in cuts with no revenue, what they forget is that half of that was in military cuts they hate more than Democrats and that their party got a real black eye from using the debt ceiling as a hostage.

   They seem to be hoping that maybe elections don’t have consequences that all they need is the debt ceiling to implement the Ryan Medicare plan. I think on this they’re dead wrong. The politics will be too perilous. They won’t be able to use this as the ultimate trump card. This grenade will detonate in their own hands.

   However, for now, it may be fine to allow them to think they have this leverage if it compels them to do a deal today. Indeed, maybe all the hand-wringing liberal posts are in our interest as well, making it easier for Republican leadership to convince their members that they’re really getting something.

   How about Bouie’s point that the Dems should be willing to go over the cliff? They should, but only if necessary. They have shown they are willing to do so, but if we get tax hikes on income, dividends, and cap gains for the rich I think that’s what we’ve been looking for. Remember that going over the cliff puts no little burden on average Americans like you and me.

  We could see immediately higher taxes taken out of our meager checks-mine is particularly meager, I hope for your sake yours is a little less so! Indeed, we will apparently see higher payroll taxes immediately anyway.

  In addition a failure to get a deal before January 1 might mean a delay in us getting our tax refunds, to say nothing for those who will see their unemployment checks interrupted-a position I’ve been in enough times over the last 4 years to know about; fortunately I’m currently employed, but for meager, part time wages.

   So while the Dems are willing to go over, it’s preferable to get a deal and I think what I’ve heard for sounds like a good deal, though of course the devil’s in the details. At least chained cpi is off the table, thanks to Harry Reid.


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